Despite the landmark state-worker pension reform legislation of 2011, which Gov. Gina M. Raimondo spearheaded while general treasurer, the system is facing yet another moment of reckoning.
The 2011 reform made a number of significant changes to the pension system, including suspending cost-of-living increases and adding a defined-contribution plan. At about the same time the state Retirement Board, the 15-member panel charged with overseeing the state-worker pension plan, was in the process of lowering the assumed rate of return for the plan's investments from 8.25 percent to 7.5 percent.
Fast-forward to today, and the simple average rate of return for the last decade is 5.5 percent, while projections for future investment returns across the economy point to 7.5 percent being a very difficult number to hit. And why does this matter? If the pension-fund investments do not hit the assumed rate of return, the fund will fall behind where it should be as part of the reform law, jeopardizing its health (and taxpayer liabilities).
The most logical answer is to lower the assumed rate of return, but doing so will likely require either increased taxpayer contributions or less generous benefits at some point. And this is exactly where the state started.
Rhode Island's willingness to deal with the health of public-employee pensions has served as an important part of its economic-development toolbox (an advantage the Ocean State enjoys over Connecticut, for instance). Now is not the time to give back that advantage. •
